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The gentle art of suing Big Guns

In August and September of 2008, 2ndlook was calling for investigations into the collapse of Bear Sterns, Lehman, et al. When the Great Recession was not real – and only a fear. While Preet Bharara was busy building a flimsy case against Rajarathnam? When Bharara should have been investigating Hank Paulson, the Former Treasury Secretary, under whose watch many bankruptcies happened. Conveniently in favour of JP Morgan and Goldman Sachs. Even now, this investigation,

To say that it comes at an awfully convenient time for President Barack Obama’s Democrats is a colossal understatement.

With mid-term elections just a few months off and the U.S. Congress set to debate a massive financial regulatory reform package — one that Wall Street lobbyists and their pals in the Senate have been fighting every step of the way — the suit offers tailor-made reformist ammo for Obama & Co.

Robert Khuzami, shortly after becoming the Securities and Exchange Commission’s enforcement chief last year, told Congress the agency must be willing to fight big cases to show it poses a “credible threat.”

Does Khuzami think that SEC scares Goldman Sachs? With the kind of money power that Goldman Sachs has, it can manage a battle with SEC for an entire generation. What SEC’s action will do is scare the likes of the co-accused in the Rajarathnam case. Extremely small fry. Even Rajarathnam was not scared of SEC. Minions – that is who Khuzami is trying to scare.

European regulators are following the SEC’s case. Britain’s Financial Services Authority said today it will start a formal probe of Goldman Sachs’s London unit. BaFin, Germany’s financial-services regulator, is requesting information from the SEC about the case.

Big Business loves regulatory overload. It kills competition!

Win over voters. Avoid charges of collusion. Shake the money tree. Gordon Brown has a tough election to win. In the middle of the Great Recession, the German Government needs to show ‘resolve.’ In the meantime, AIG has also decided to try a shakedown.

The SEC’s Republican commissioners, Kathleen Casey and Troy Paredes, opposed the lawsuit against Goldman Sachs, which was approved in a 3-2 vote, two people with knowledge of the matter said yesterday.

Nobody’s ‘tellin’ but everybody knows. Big business and Big Government. That is the axis on which ‘progressive’ economies of the world are being built – and depend on. Or become a large public-sector enterprise – like Europe has become. This is the regulation gambit.

Government’s impose regulation to eliminate the small players – who cannot bear the regulatory overload and compliance costs. More regulation helps the big players – and big players have the financial and bureaucratic muscle to manage excess regulation.

The trouble with Hank

Was Hank Paulson making it easier for his ex-employer Goldman to buy up competitors? Was he helping out JP Morgan with WaMu and Bear Stearns? It was well-known that JPMorgan Chief, Jamie Dimon had long drooled over WaMu. While a lot of stressed organizations were getting support, Hank Paulson allowed Lehman to go under! JPMorgan was being blamed for Lehman collapse.

US bank JPMorgan Chase stands accused of precipitating the collapse of American investment bank Lehman Brothers by freezing Lehman assets days before it filed for bankruptcy protection, the Sunday Times reported.

After 60 Days

Was Paulson looking at his own future, while deciding on the future of Bear Stearns, Lehman Brothers, WaMu? How 60 days later, when he would need a new job! Was the collapse of Lehman, a deal for a job with Goldman – or was it JP Moran Chase? While a lot of people were getting support, Paulson allowed Lehman to go under!

I wonder why?

Transparency International does not call this corruption. But then, that is par for the course!

The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of September 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

Back then in 2008, first, the world was hit by Big Oil at US$150 per barrel. As though that was not enough, came the Big Banks! After Big Oil and Big Banks, we will have the pleasure of getting the The Big Lie!

In Sanskrit, the difference between लाभ labh (profit) लोभ lobh (greed) is सूक्ष्म thin. Very thin. Government should not be greedy in matters of taxes and imprisonment.

He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who d call you an idiot or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?

In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America s rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam s business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts. (via The Man Who Wired Silicon Valley – WSJ.com).

Hatchet job … or a smear

This rather long post in WSJ was rather interesting. Some things stand out.

The article mentions how the SEC and FBI was working to“build the biggest insider trading case in a generation.” What makes it the largest insider trading case? US$20-US$25 million? By the way, nowhere do the writers mention that the amount in question is US$20 million (as per FBI and US$25 million per SEC). In more than 15 A4 pages, and 6500 words.

The whole article is about anecdotes – I counted more than 32 anecdotes and gave up.

This article talks of a how Rajarathnam had earlier handed over a huge cache of documents in an investigation relating to his younger brother Rengan, in “early 2007 in cooperation with an SEC investigation of his younger brother, a probe that hasn’t resulted in charges.”

“There is reason to fear that there is a culture –not only at hedge funds but at large firms in the financial sector — that thinks nothing of casually exchanging material nonpublic information,” said Preet Bharara. Now if this is the pervasive culture, how come only Rajarathnam and his ‘associates’ were investigated, charged and arrested.

Is Preet Bharara expecting that every word of every conversation be released to the public before talking to anyone – or is he talking of a simul-cast of all conversations! Google are you listening!!

“Insider-trading charges are notoriously difficult to prove. That’s because Wall Street is awash in information, and every savvy investor tries to be the first to ferret out important tidbits. To gain a conviction, prosecutors have to persuade a jury that a person traded on information that they knew was not only confidential but was also important enough to move a company’s stock price.” Why is it difficult to prove? Because it is difficult to define? Now if the WSJ knows this, should it not be fair and balance the coverage. But nowhere do they examine the difficulty of defining insider trading.

Would you like to prosecute Citibank, Goldman Sachs and Alan Greenspan for the way they ‘saved’ LTCM? If you ask me, it was a mix of inside information, racketeering and anti-trust rolled in one.

WSJ articles talk about how another case had to be dropped as they were “unable to prove that Mr. Rajaratnam traded on the information.”

On Wall Street

Coconut Bharara - Brown outside, vindictive inside?

The case of the Sri Lankan Rajarathnam has similar smell to it. The US prosecuting authority, Preet Bharara, the U.S. Attorney for the Southern District of New York, alleges that the Galleon Fund made some US$20 million out of this insider trading.

Galleon Fund (more than US$5 billion in assets under management) probably spent more than US$20 million on tea, coffee, espresso, soda, Evian and paper napkins.

Character certificates from prosecutors?

Robert Khuzami, director of enforcement at the SEC, said the charges show Rajaratnam’s “secret of success was not genius trading strategies.”

“He is not the master of the universe. He is a master of the Rolodex,” Khuzami said.

Is Khuzami here to pronounce judgment on Rajarathnam’s business skills? How is this comment relevant at all? All that Khuzami & Co needs to do is show culpability for specific action(s) – and not pronounce or give character or competency certificates.

What Khuzami is doing is usually called vilification. And why do you need to indulge in vilification, Mr.Khuzami? Is that not abuse of your office and statutory powers? Is that not misuse of Government machinery?

“Greed is not good,” Bharara said. “This case should be a wake-up call for Wall Street.”

I think I know …

I agree with you on this one, Mr.Bharara. Greed indeed is not good. Now you (might) know that in Sanskrit, the difference between लाभ labh (profit) लोभ lobh (greed) is सूक्ष्म thin. Very thin. A government official should not be greedy in justice and convictions. America’s overflowing prison population is proofenoughthat rigid justice wont work. It is always better to be a little lenient – rather than being repressive.

Checking out the American Dream

But then maybe it is beyond your tolerance. After all, in all the articles and posts, which covered Rajarathnam, not once did Rajarathnam bang his head at the altar of the ‘American Dream.’

It is galling, isn’t it? I understand your frustration and anger. Everyone else does it. Why is Rajarathnam not doing it? Maybe that is what is beyond tolerance.

In the last 3 years

In the last 3 years, 5 investigations related to people with Indian background, in US Courts, have advanced to the stage of prosecution and three have matured to sentencing in US Courts.

The first was the Anand Jon case, the second is the Vikram Buddhi’s case. The third case, Rajarathnam’s, let us examine later in the post. The two other are Rajat Gupta and Dharun Ravi. Legal and technical merits of the Anand Jon and Vikram Buddhi’s case I will not go into.

Let’s presume that these two are guilty, fully and completely.

Crime and punishment

For the purpose of this post, let us not say ‘alleged’ crime – and assume that the due process of law did unravel the crime and fix culpability. SO, what was Vikram Buddhi’s crime?

a Yahoo message board in late 2005 and early 2006. The postings mocked American foreign policy and made threats against Bush and other officials. “GO IRAQIS!… KILL GW BUSH… AND KILL LAURA BUSH… KILL DICK CHENEY THE WHITE FAT PIG,” one said.

According to what the law is, the guidelines are it was an appropriate and fair sentence. May be Mr. Buddhi does not think so. But I think it was well thought of and well reasoned by the judge Actually I though that the judge was kind to Mr. Buddhi.

Rules can change

Hal Turner, posted messages on his blog, calling for killing of judges. The twist in the case happened when Hal Turner claimed that he

received thousands of dollars from the Federal Bureau of Investigation to report on neo-Nazis and white supremacist groups and was sent undercover to Brazil, according to a report on Sunday by The Record of Bergen County.

Mr. Turner also claims the F.B.I. coached him to make racist, anti-Semitic and other threatening statements on his Internet radio show, but the newspaper also found that many federal officials were concerned that his audience might follow up on his violent speech.

The newspaper reviewed numerous government documents, e-mail messages, court records and almost 20 hours of jailhouse interviews with Turner.

The 12 man jury could not agree to Hal Turner’s guilt – and mistrial was declared. Across the continent, in Europe, in the case case of child-rapist Roman Polanski,

the director’s sister-in-law Mathilde Seigner hinted that the leader (Nicholas Sarkozy) has been instrumental to the recent development.

“I wouldn’t go so far as to say that it is thanks to the President that Roman has been freed, but he has been super. The President has been very effective,” Times Online quoted her as telling Le Parisien newspaper.

Joseph Wambaugh on Hollywood

For years now, I have been avid reader of Joseph Wambaugh – a policeman turned writer.

Wambaugh’s comedies, wrapped in (mostly) LA or (sometimes) New York milieu, are in the style of Raymond Chandler under halogen lamp. The darker areas get better light. The chrome glints more. Glamour quotient gets mixed with large doses of warmth and understanding. Unlike Chandler, Wambaugh’s is never judgmental – which make his characters very real.

I read Wambaugh’s Glitter Dome, and twenty years later I remember one of his interesting observations on Hollywood,

But anyway, coming to why this story gets me curious, is why did Anand Jon, a haute couture designer get such a harsh sentence. Unwilling /semi-willing /actively willing sex in Hollywood /Bollywood /haute couture businesses is what (I have been given to believe) is normal. I mean these days, stars /starlets ‘leak’ sex tapes on the internet.

Remember two things. We are talking about such ‘abnorml sex, in the pornography capital of the world – the USA. And, two. No one has ever been seriously prosecuted, convicted and sentenced – as Anand Jon has been!

Where is the balance

Brooks is out on bail – while the prosecution ‘builds’ its case. Will he get more than a rap on his knuckles? (St. PT Barnum, our resident propaganda slayer has recommended that) Brokelads offer 17-3 odds against Brooks getting a jail sentence of more than 12 months.

On two things, there is no doubt (in my mind). But Anand Jon is guilty – and an Indian.

That gets him a minimum of 59 years in prison.

On Wall Street

The case of the Sri Lankan Rajarathnam has similar smell to it.

The US prosecuting authority, Preet Bharara, the U.S. Attorney for the Southern District of New York, alleges that the Galleon Fund made some US$20 million out of this insider trading. Galleon Fund (more than US$5 billion in assets under management) probably spent more than US$20 million on tea, coffee, espresso, soda, Evian and paper napkins. Rajrathnam’s own net worth was estimated by “Forbes” to be US$ 1.3 billion.

Wire-taps have never used in USA, allowed in American courts as admissible evidence, except in racketeering and organized crime cases. Wall Street has never seen wire-taps and phone-bugging ever before.

The world’s largest prison population

The US with the world’s largest prison population, I am sure, has many other cases of such judcial ‘zeal’! So, Vikram Buddhi, Anand Jon and P Rajarathnam are definitely not an exception. But, it is possibly the first time that three people from an Indian background were targetted in a similar manner in such a short time. Though, remember that Rajarathnam is not an Indian, but a Sri Lankan.

For Indians, used to being lionized in Western press, should look at the emerging threats of this differential judicial treatment – and factor for the same.

The director’s sister-in-law Mathilde Seigner hinted that the leader has been instrumental to the recent development.

“I wouldn’t go so far as to say that it is thanks to the President that Roman has been freed, but he has been super. The President has been very effective,” Times Online quoted her as telling Le Parisien newspaper.

Joseph Wambaugh on Hollywood

For years now, I have been avid reader of Joseph Wambaugh – a policeman turned writer. His comedies, wrapped in (mostly) LA or (sometimes) New York milieu, are in the style of Raymond Chandler under halogen lamp. The darker areas get better light. The chrome glints more. Glamour quotient gets mixed with large doses of warmth and understanding. Unlike Chandler, Wambaugh’s is never judgmental – which make his characters very real.

I read Wambaugh’s Glitter Dome, and twenty years later I remember one of his interesting observations on Hollywood,

Parking, not pussy, is at a premium around these parts, they said.

Wambaugh captures the politics of Hollywood in The Glitter Dome By Joseph Wambaugh, page 46

But anyway, coming to why this story gets me curious, is why did Anand Jon, a haute couture designer get such a harsh sentence. Unwilling /semi-willing /actively willing sex in Hollywood /Bollywood /haute couture businesses is what (I have been given to believe is) normal. I mean these days, stars /starlets ‘leak’ sex tapes on the internet.

And no one has ever been seriously prosecuted, convicted and sentenced – as Anand Jon has been!

The US prosecuting authority, Preet Bharara, the U.S. Attorney for the Southern District of New York, alleges that the Galleon Fund made some US$20 million out of this insider trading. I am sure that Galleon Fund (more than US$5 billion in assets under management) spent more than US$20 million on tea, coffee, espresso, soda, Evian and paper napkins. Rajrathnam’s own net worth was estimated by “Forbes” to be US$ 1.3 billion.

Intrigued? Interested!

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